Following the D.C. Circuit Court of Appeals’ decision on Oct. 26 to officially remand George Johnson and the digital services’ appeal of the Copyright Royalty Board rate determination back to the CRB judges, the National Music Publishers’ Association (NMPA) and the Nashville Songwriters Association International (NSAI) have filed a motion asking the CRB to set interim rates at the current levels.
The digital services — Spotify, Amazon, Pandora, and Google — appealed the determination that would see the headline rate for music publishing royalties rise 44% from 10.5% to 15.1% of revenue during the 2018-2022 term. The Appeals Court vacated the CRB’s adopted rate structure and percentages and remanded the proceeding back to the CRB.
With that, the NMPA and NSAI motion asks the CRB to keep the current rate structure in place to “avoid significant confusion and disruption in the mechanical licensing market, and harm to the copyright owners during the period pending the Remand [Rate] Determination.”
Under the rate determination that is now in question, services this year are paying either 13.3% of revenue or 24.10% of its content costs to record labels, whichever is greater, as step one in the complex rate formula. So NMPA and NSAI are asking that those rates stand, while the CRB wrestles with how to fulfill the Appeals’ Court remand.
The motion, supplied to Billboard by the NMPA, says that the partial remand of the CRB rate determination “leaves the door open for services to unilaterally pursue alternative and unreasonable interpretations that sharply reduce rates and terms, leaving the current marketplace without reasonable interim rates and with widespread uncertainty about royalties.”
Without an interim rate, the NMPA and NSAI say they fear “there will be a free-for-all,” with services selecting rates unilaterally.
“We understand Spotify and Amazon are considering cutting what little they pay songwriters during the Copyright Royalty Board (CRB) remand process,” NMPA president and CEO David Israelite said in a statement. “In 2018, the CRB gave songwriters a hard-fought rate increase, and Spotify and Amazon appealed that decision based on technicalities. It appears that, rather than await the results of that appeal at the CRB — which we believe will uphold the songwriters’ raise — these multi-trillion dollar companies are doubling down on their assault against creators by lowering what they pay before we have a final determination. Exploiting this interim period to reduce payments is a pure money grab when songwriters are at their most vulnerable due to the COVID-19 crisis.”
For example, if the services were to adjust the rates now and return to those of the 2013-2017 term of either 10.5% of revenue or 21% of master recording costs, such a change “would trigger a landslide of transaction costs and would jeopardize the livelihoods and economic well-being of songwriters and copyright owners in the midst of a pandemic,” the motion argues.
Moreover, if the services were to change what they pay and then the CRB remand determination came out with a different final rate, that “would likely trigger another landslide of transaction costs to alter the changes that occurred during the interim period,” the motion argues. “This would create almost the worst of all possible scenarios for short-term disruption causing irreparable harm to songwriters and copyright owners already in precarious financial positions.”
Furthermore, the Mechanical Licensing Collective is expected to officially begin operations on Jan. 1, 2021, and the rate uncertainty could interfere, according to the motion, with the MLC’s ability to discharge its statutory mandate of collecting royalty payments from services, matching the recordings played to the copyright right owners and making correct payments.
Finally, the motion further points out that “maintaining the current rates will not cause disruption to the services, which have successfully operated with nearly three years of the current rates…[which] confirms that the streaming services, instead of being disrupted, are thriving under these rates and should continue to do so through the interim period.”
“The remand was never intended to be a window for services to slash what they pay songwriters, and it is unconscionable for any service to do so while the rate determination is still in flux, particularly as the CRB’s assertion that higher rates are needed was substantively upheld by the D.C. Circuit,” Israelite continued in a statement.
But the Digital Media Association, a trade group for digital services, disagrees with Israelite’s interpretation of the Appeals Court remand. “There is a legal process in place to determine the applicable rates at issue, and the Court of Appeals ultimately agreed that the original decision of the CRB was unsustainable,” DiMA CEO Garrett Levin said in a statement. “The findings from the court are clear – the Phonorecords III rates in question are vacated in their entirety, leaving the Phonorecords II rates and structure as the only enforceable standards for the industry. Our individual members will make their own business decisions in light of that reality, but rest assured, at the end of this process copyright owners and songwriters will receive the full amount of mechanical royalty payments they are owed as ultimately decided by the CRB.”
The NMPA/NSAI motion reminds the CRB that lower rates during a pandemic that has severely impacted other industry income streams — such as touring — “would be disruptive enough, and could strike at the financial foundation of countless families and businesses.”
But in his statement Levin reminds songwriters and publishers that during the pandemic, the digital services are the most stable income stream for the industry as a whole. “In the meantime, everyone in the industry should be focused on the continued health of streaming, which is helping to sustain songwriters in a perilous time, and preserving a system where music is legally accessible, affordable and easily discoverable by fans,” Levin’s statement continued.
But Isrealite says that if the services revert to the earlier period’s rates without knowing what the CRB’s final rate determination will be, “‘claw[ing] back’ three years of royalty increases using unilateral determinations of rates based on perceived ambiguity as to the effective rates, could deepen the harm. Such disruption clearly constitutes sufficient grounds for setting the Interim Rates,” the motion concludes.
“The motion we filed affirms leaving the existing rate structure in place during this remand process,” Israelite said in a statement. “This should be obvious, but it appears Spotify and Amazon may stop at nothing to undercut the very creators they rely on. Apple and Google notably are not taking the same controversial position and instead see songwriters as business partners as opposed to adversaries….We will continue to fight to uphold the raise we achieved for songwriters, and also to educate them on how their rights are being undermined by the streaming companies who need them most.”
Israelite tells Billboard, “we are facing the potential of different companies doing different things” with regards to royalty payments. “We asked the digital services to join us in this motion so that everyone could have certainty” while the remand process played out, he added. “But they all declined.”
The Oct. 26 official remand starts the 45-day clock for all parties to file proposed plans with the CRB on how to satisfy the DC Circuit mandate.
The digital services didn’t individually respond to e-mailed requests for comment at press time, apparently leaving it for DiMA to voice their concerns.